Naira Falls to N1,413/ $ in NAFEX as CBN Orders Pricing Change

Nigeria’s naira plunged to a record against the dollar following a revision of the methodology used to set the exchange rate, in effect the second devaluation of the currency in seven months.

The local unit depreciated 31% to 1,413 naira a dollar on Monday in the so-called NAFEX fixing, the official foreign exchange window, according to data published by FMDQ, which calculates the exchange rate for the West African nation.

The move came after the Central Bank of Nigeria accused traders of manipulating the exchange rate by under-reporting transaction rates.

That brings the naira closer to its parallel-market rate of 1,468, and follows a devaluation of almost 30% in June as the CBN liberalized the currency regime in an attempt to attract inflows and improve liquidity.

On Tuesday, the central bank said it had cleared all verified dollar backlogs owed to foreign airlines operating in the country, after paying out an additional $64 million. The International Air Transport Association said that while it welcomed the payment, airlines are still owed about $700 million.

“This is exacerbated by the devaluation of the Nigerian naira, which has dropped significantly against the US Dollar,” it said in a statement. “Airlines should not be unfairly penalized by the lower exchange rate.”

The Lagos-based FMDQ said in a notice to financial market operators that the change to the pricing methodology “aims to address recent fluctuations and challenges encountered in the Nigerian Foreign Exchange.” The measures will ensure “rates accurately reflect market conditions while upholding price formation and transparency,” it said.

A central bank spokesman did not immediately respond to requests for comment on the changes.

“The NAFEX fixing and closing rates were weighed down by trades going through at off-market levels’” said Samir Gadio, head of Africa strategy at Standard Chartered Plc. “What is clear at this point is that these off-market trades are not factored in anymore, hence the jump in NAFEX.”

While the depreciation has been “very significant,” dollar supply from the central bank will need to improve for the naira to stabilize or even strengthen, Gadio said. Currency inflows from portfolio investors would follow, further supporting the naira, once short-term interest rates rise significantly, he said.

The central bank is expected to raise rates sharply when it holds its first policy meeting since July at the end of next month.

In a circular published Monday, the CBN said it had become aware of traders reporting “inaccurate and misleading information,” including under-reporting of transaction pricing, which affected the exchange rate.

“Deliberate attempts to create price distortions by reporting false transaction details amounts to market manipulation which will not be tolerated and will henceforth face sanctions,” the central bank said. It added that it is “committed to a well-functioning and transparent market” conducted on a willing buyer, willing seller basis, with prices quoted and displayed transparently.

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